Digital Yuan: Weapon in US Trade War or Attempt to Manipulate Bitcoin?

Six years after beginning to research digital technologies, China has finally decided to accelerate the development of a state cryptocurrency

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Analysis

After a short stay in the red zone, Bitcoin (BTC) has recovered toward $12,000, with traders turning bullish as ever. Experts call the United States-China trade war a key reason for the main cryptocurrency’s price fluctuations. Fuel to the fire has been added by the recent announcement by the People's Bank of China (PBoC) of plans to get ahead of the U.S. and Facebook’s Libra by issuing a national cryptocurrency.

Chinese government is set to digitize yuan, challenge U.S. and Libra

As Cointelegraph reported, the PBoC plans to focus on developing its own legal digital currency. On Aug. 2, during a video conference devoted to discussing financial tasks for the second half of 2019, heads of financial and economic institutes in China touched upon the topic of cryptocurrencies. The country’s central bank announced its intention to accelerate the development of its own digital currency and also confirmed its plans to allocate more resources to the implementation of this task.

It is notable that the decision of the Chinese bank to intensify the creation of a national cryptocurrency was preceded by the hotly debated development of the Libra coin. Initiated by Facebook in 2019, the project is now actively being lobbied for in the U.S. government, but without any results so far.

In July, Wang Xin, director of the PBoC Research Bureau, said that, with the development of the Libra cryptocurrency project, the People’s Bank of China should accelerate the growth of its own digital currency, which it has been working on over the past few years. Wang believes that the risks Libra bears for the traditional financial system will force regulators to devote many more resources and forces to develop its digital currency. Wang asked:

“If [Libra] is widely used for payments — cross-border payments in particular — would it be able to function like money and accordingly have a large influence on monetary policy, financial stability, and the international monetary system?”

In particular, China is concerned about which currencies Libra will be tied to and what role the U.S. dollar will play in this project. Wang said:

“If the digital currency is closely associated with the US dollar, it could create a scenario under which sovereign currencies would coexist with US dollar-centric digital currencies. But there would be in essence one boss, that is the US dollar and the United States. If so, it would bring a series of economic, financial and even international political consequences.”

Former PBoC Chairman Zhou Xiaochuan also believes that the concept of a global digital currency introduced by Facebook that can be exchanged into fiat money threatens existing cross-border payment systems and could weaken the position of national currencies, which he spoke about at a conference in Beijing, as